Savers are left in limbo by pension providers unclear on rules – with some
being able to cancel and others not

Savers on the verge of retirement have been hit by chaos across the pensions industry, which is scrambling to adjust to the radical shake-up announced in the Budget.

Temporary measures announced by George Osborne to give savers more freedom with their pensions in retirement begin today, with the ability to take any pension in cash scheduled for introduction in 2015.

In the past eight days, thousands of customers have bombarded insurance companies and financial advisers with calls to cancel annuity contracts that have either just been issued or were about to begin paying out a retirement income.

In response, some insurers, such as LV= and MGM Advantage, have extended the annuity cooling off period during which purchases can be reversed from 30 days to 60 days.

But this lifeline is not being extended as far – if at all – at other firms (see below), leaving customers locked into an average payout of around £140 a month for life. For many, this is less useful than having the money paid out as a cash lump sum, whether now under the transitional rules (below), or in a year’s time.

Even in cases where insurers are trying to show leniency, a lack of clarity on tax rules in this crucial period has left customers in limbo.

In other cases, savers are being told conflicting information on different days.

Huw Evans, director of policy at the Association of British Insurers, the insurance trade body, said firms are unsure whether tax free lump sums can be reversed for those customers who have just bought an annuity and now wish to change their mind.

He said: “Pension and annuity providers were given no advance warning ahead of the Budget changes that came into effect within a 10 day period and have been working round the clock since to help customers understand their choices. The Government’s announcement introduced a cliff-edge for customers and it is wholly unacceptable that a week after the Budget HMRC has still not clarified the rules for those customers who have just bought an annuity and now want to reverse that decision. The current HMRC rules state that this is an irreversible benefit – yet providers, customers and financial advisers need clarity urgently if they are to navigate the current situation.”

Sandra Pember, from Gloucester, helps with the affairs of a 61-year-old friend who has Alzheimer’s and lives alone.

She said: “Post Budget, we rang LV to cancel her annuity as we thought she was within the 30 day cooling off period, but were told in began from when she sent her application form, not when the application was money was taken.

“This was so disappointing because if she'd have been deemed to have been within the cooling off period, she'd have been able to have opted out of the annuity and next year access to all of her pension pot to pay off her outstanding mortgage.

“It would have given her a little bit of money left to enjoy what time she has left without the pressure of the constant worry of funding her remaining mortgage, which would have been life-changing.”

But on Monday this week, LV called to say they had extended the cooling off period and Mrs Pember’s friend qualified.

Insurer cancellation periods

Of the companies which have extended their cooling off periods, Prudential will give customers until Friday March 28 if their 30-day window would have expired in the days since the Budget.

LV= and MGM Advantage have extended cooling off periods to 60 days.

Scottish Widows has also increased its cooling off period to 60 days. Quotations issued since February 18 will also be given this extension.

Standard Life will allow customers who purchased an annuity since February 13 to reverse their purchase.

Aviva has changed its deadline from 30 days from the receipt of application to 30 days from when the payouts begin.

Partnership has extended its cancellation rights to 11 April for customers whose cooling off period had just expired.

Canada Life gives 30 days after the policy document was issued – no change.

Legal & General and Hodge Lifetime gives 30 days from when the application was signed – no change.

Just Retirement gives 30 days from when the customer received their "right to cancel" document – no change.

Transitional arrangements

The changes that come into force today:

– The minimum secure pension income from other sources (final salary, state pension etc) needed to access your entire pension pot at any time (flexible drawdown) has been reduced from £20,000 to £12,000. This should allow 56,000 people to draw down their pension as they wish, subject to their marginal rate of income tax, according to the Treasury.

– The Government has increased the "capped drawdown" limit from 120pc to 150pc of an equivalent annuity. Capped drawdown is where you leave your pension invested in the stock market and take a slow income. The change means someone aged 65 with a pot of £100,000 will be able to take an additional £1,830 from their pot, before tax, according to the Treasury.

– From today, if savers have total pension savings of less than £30,000, the entirety can be taken as cash, subject to marginal rate tax on 75pc of the money. Previously the limit was £18,000.

– Up to three pension pots worth under £10,000 can be taken as cash lump sums, subject to tax on 75pc. This will benefit an additional 32,000 people, according to the Treasury. For example, an individual with three pension pots of £7,000, £8,000 and £9,000 will now be able to take these as a lump sum of £24,000, rather than having to buy an annuity and receive around £1,300 a year.

money@telegraph.co.uk

The Telegraph Investor

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